Recently, Softbank’s acquisition of ARM and the purchase of Finnish games developer Supercell by the tech giant Tencent have created ‘platforms’ that will lead to the creation of entirely new European business units for two very well-funded Asian buyers.
But these could be just the first in a much broader move by Asian companies looking to acquire European tech companies, according to Magister. Asian buyers are expected to snap up $2-3bn worth of smaller European tech companies this year, which would represent a10x increase from 2013 levels and Magister has predicted that in 5 years up to 30% of European tech M&A and investment will be driven by Asian buyers; translating into c. $100bn annually coming into Europe.
So what’s driving this wall of money? There are a number of reasons: Chinese tech giants are generating far more cash than they can profitably deploy in China; growth in China is slowing; European tech companies are more capital-efficient than their US counterparts, making them a safer bet for profit-oriented Asian investors and for European companies gaining a significant Asian investor who is motivated to help “bring the technology home” can transform their reach into Asia.
Victor Basta, managing director of Magister Advisors, said: “Across Europe, technology stands out as the fastest growing sector in an under-performing continent.”
He suggests that while it may appear that for Europe it will be seen as “selling” the family jewels, this investment could have a transformative effect.
“Asian dragons will put talk of unicorns in the shade,” he suggests.
But the news that the German government has withdrawn approval for the €670m takeover of technology manufacturer, Aixtron, is starting to cloud this scenario.
The German decision comes amid growing concerns about China’s appetite for German industrial companies, and worries over security.
The decision to rescind the approval was based on "previously unknown security-related information", according to Germany's Deputy Economy Minister Matthias Machnig, without being more specific.
European protectionist noises are certainly growing and calls are mounting over the importance of protecting strategic technologies and companies.
Other governments in Europe and the United States have put China's offshore ambitions under the spotlight this year.
Daniel Domberger, a Partner and technology expert at the M&A experts Livingstone, believes that the German decision is a mistake and an over-reaction.
“As ever, the regulators are late to the party. There were 26 acquisitions of German companies by Chinese and Hong Kong acquirers in 2014; in 2015, there were only 14. Volumes have picked up again this year but in the context of 750-850 deals in Germany each year, roughly half domestic and half with international buyers, Chinese acquisitions account for 1 in 20 or 30 German sales to foreign buyers.
“Re-visiting decisions based on unspecified and newly-identified "security" concerns sounds like political cover for a populist headline,” he believes.
Should the Eurozone be deterring investments like this, especially those coming from China?
With China accounting for so few of the deals taking place this does look like political posturing.
While this might be politicking it isn't without risks. If the level of investment suggested by Magister does materialise, attempts like these to block Chinese investment could have profound implications for Europe’s technology sector.
